5 Ways The Market Basket Muddle Could Break

A customer walks past empty shelves at a Somerville Market Basket on July 22. The 40-day dispute is now over. (Jesse Costa/WBUR)

Tuesday was a seesaw day in the ongoing Market Basket muddle, as the board of directors shot down a report that ousted former CEO Arthur T. Demoulas' offer to buy the company was the last one on the table. The board said there are "several potential buyers."

So what is going to happen with Market Basket? The stalemate between the two sides is enduring through a second week. Store shelves and parking lots are largely empty.

This scene can't go on, says Boston University School of Management operations professor Sean Willems. It's costing the company millions of dollars per day. While Market Basket may be able to defer some of its costs, the revenue it is losing now is gone forever.

"The end game for this has to be sooner [rather] than later," says Willems, before adding, "if people are being economically rational."

So what "rational" solutions are there to end a crisis that's costing workers and family shareholders alike? Here are five scenarios.

Option 1: Bring In The 'Pinkertons'

Market Basket employees are openly defying orders from top management to resume business as usual. Their defiant posts on social media and public disruption of operations are giving the company plenty of documentation to sever ties. A statement from the company board of directors said: "We know and understand that trust and acceptance are earned and cannot be demanded or imposed." Even so, the company could impose its will by firing workers who are flouting company orders and by hiring replacements.

It seems unthinkable, but it also appears well within the rights of the company. Of course, a massive public backlash would likely follow from government officials, labor advocates and consumers.

Would such a huge outcry kill the company? Not necessarily, says BU's Willems. He says it's an open question how much customers would care if the stores were open and run by different employees.

"People choose the places that they shop as a function of many things," he says. "Some of the main ones are location and price. So you would think a lot of people would come back."

Market Basket employees have asserted an implicit right of “natural ownership” of what they believe to be their company. Whether that psychological ownership can be partially realized through legal ownership is up to insiders to determine.

So why not sell to them and wash your hands of the company? Employee-owned companies are far from unusual in New England. For instance, Boston's Harpoon Brewing Co. recently became 48 percent employee-owned. But be prepared for many lawyers to be involved.

"It's a very complicated and expensive thing to do," says Dan Kenary, Harpoon's co-founder and incoming CEO of the employee-owned company. "You'd better really want to do this."

In such a deal, the company secures financing to take on debt to buy out existing shareholders. In Market Basket's case, this would mean the controlling share of the company owned by the side of the family led by Arthur S. Demoulas would sell its shares to an employee entity.

One advantage of such an arrangement is that these deals are highly regulated. Federal officials, wary that company executives would dump their shares on unsuspecting employees at an unfair price, require third-party valuation and auditing. That's just the sort of thing demanded in a situation in which a family feud over the course of decades has created a colossal loss of trust. To wit: In previous buyout bids, Demoulas family members have sued each other over what they considered unfair valuations of the company.

Still, some business experts warn that if Market Basket were employee-owned, it would limit the potential growth of the company. Often the shareholders of the company — and how deep their pockets are — can help determine how a company can expand and enter new markets. Employee ownership would likely determine a fate for Market Basket: to continue as a lean-running, narrowly distributed regional supermarket chain.

And that might just be fine for employees, but it's an important strategic choice.

Option 3: Take My Company, Please!

The board of directors could sell Market Basket to an outside buyer. For the time being, the likelihood of this option goes down each day. The Boston Globe reported early Tuesday that Market Basket's board had only one offer left on the table: that of ousted CEO Arthur T.

[Update at 5:15 p.m.: A board spokesperson is just out with a statement that says, in part: "Despite reports to the contrary, Arthur T. Demoulas is but one of several potential buyers for the Company who continue to express a strong interest in purchasing the Company. While Mr. Demoulas’ offer provides a path toward solving many of the problems he has helped to create, it is but one alternative among the options the Board is reviewing."]

Because as each day passes, the company becomes worth less. Other supermarket chains that have previously been interested in buying Market Basket would now be buying a hot potato right from the oven. New ownership would inherit the company in turmoil and employees fiercely loyal to both Arthur T. and the way things were done before.

It's not exactly a formula for a hefty price tag. For now, no one wants to burn their fingers.

But don't write off this option. The longer the standoff goes on — and the lower the value of the company goes — eventually, an outside buyer could again become a realistic option. After all, if some other supermarket chains can buy Market Basket at bargain basement prices, the more they're willing to take a risk on it.

Option 4: Employees' 'Dream Scenario': Artie T. Is The Buyer

Essentially, the long stalemate between the family's two sides is like two wrestlers locked into a position where neither gets leverage over the other to break free. But right now, both are losing so much money that they have to do something: Give up and lose (less).

Arthur S. and his side of the family controlling 50.5 percent of the company could accept Arthur T.'s offer to buy the company, and buy them out. In a way, Arthur T. has them over a barrel: Their worth is dropping each day the company loses millions. As the company becomes worth less, so do their shares. Arthur T.'s bid, which he called "full and fair," may not net the Arthur S. side as much as they thought they were worth only last week. But it could be a lot more than what they would get if the standoff endures and, worse, if the company loses so much it has to declare bankruptcy.

It could happen. Imagine the cheers from rank-and-file employees, who saw top executives and the board of directors buckle to their pressure. Imagine the smile on Arthur T.'s face as he strolls into a store, back as CEO.

"It has the beginnings of a Disney movie," BU professor Willems says.

But Willems warns there are still many questions about the viability of this option. Market Basket is a private company, so it's not clear how much debt it has, what its profit margins are, and how much money Arthur T. has in the bank.

Estimated valuations put Market Basket's overall price tag at more than $3 billion. (There's no yearlong 4 percent discount on this purchase!) That might be sticker shock for Arthur T., who presumably would have to get outside financing to be able to buy out his cousin's side.

The simplest option is not to negotiate a sale but to simply reinstate Arthur T. as CEO, which would satisfy the chief demand of company employees. Workers would go back to work, customers would come back to shop, the press would marvel at a successful employee-led revolt, and the company would be back in business.

But not exactly back to normal. The sort of boardroom acrimony and resentment that would most likely endure wouldn't have the ingredients for a future of sustainable leadership and growth. Under this scenario, the Arthur S. side of the family could court buyers for the company while it's making money, not losing it.

And under this scenario, outside buyers would have time to make a plan for buying the company and transitioning its leadership. Willems calls this a "hybrid Pinkerton" scenario where, eventually, change would come to the company that doesn't seem to want to change.

Arthur S. and his side own the controlling interest in the company. After all, for as much "psychological ownership" (as Kochan called it) employees have demonstrated over the past two weeks, they don't control everything.